Thursday, August 28, 2014

How Cost Cutting Can Lead To Job Creation, According To Bill Ackman

Bill Ackman likes to position himself as making investments that are “good for America,” and while he admits that some of his 30 activist campaigns have cost jobs, he believes he is ultimately a job creator.



Eduardo Munoz / Reuters


It would seem contradictory for Bill Ackman to claim to be a "net-net job creator" while also being at least partly responsible for roughly 30,000 job losses.


But the founder of $13 billion hedge fund Pershing Square Capital doesn't see any inconsistency. In fact, as he has often said over the years, his activist investing campaigns against the likes of Fannie Mae and Freddie Mac, J.C. Penney, Procter & Gamble, and many others are "good for America." Ackman is indeed fond of framing his investment ethos in patriotic terms, and he's trotted out this line repeatedly over the years, as recently as July during his latest presentation making the case for his short bet against nutrition supplement company Herbalife.


But employees at the companies he targets — many of whom end up representing the human capital Wall Street investors account for as "cost savings" in deals and turnaround scenarios — may not exactly view Ackman as a superhero investor draped in the American flag. Take, for instance, the 1,500 employees at Allergan, the most recent Ackman target, who were just laid off as a cost-cutting effort to stave off a hostile takeover by competitor Valeant he is attempting to orchestrate. Or J.C. Penney, which lost 19,000 jobs under the reign of Ackman-appointed CEO Ron Johnson and a campaign the hedge fund billionaire now admits was "a failure."


Still, in an interview with BuzzFeed, Ackman stood by his patriotic investing mantra, saying that the minor job losses resulting from the roughly 30 activist investing campaigns he's waged over the years were necessary to help save the companies and were a better alternative than having an entire workforce disappear in the event of a bankruptcy or liquidation.


"Companies have to be run more efficiently because the world is a competitive place. You can't just look at a job loss and say that's a bad thing," said Ackman, who added that on the whole his track record shows him to be a "net-net job creator."



Todd Korol / Reuters


He has a point, and one that statistics seem to corroborate.


What is perhaps Ackman's most successful activist campaign, Canadian Pacific, went from one of the worst performing railroads in North America — with a stock price around $42 per share when he first bought into the stock in 2011 — to what is now a more than $200 per share stock, netting Ackman, his investors, and the company's shareholders a hefty profit along the way. And though Hunter Harrison, the CEO Ackman put in place after joining Canadian Pacific's board, oversaw around 4,500 job cuts, Ackman said they were mostly early retirements.


"With Canadian Pacific, Hunter offered a job to anyone who wanted one, and very few people were fired, just really underperformers," Ackman said. "The vast majority of job reductions were voluntary retirements — people who chose to retire early in light of the older demographics of Canadian Pacific's workforce."


Ackman also pointed to the spin-off of Howard Hughes Corp. as another example of how his activism has created jobs that might otherwise have been lost. In late 2010, Ackman carved the commercial real estate company out of General Growth Properties, which at the time was toiling in the depths of a bankruptcy settlement.


Pershing Square and two other investors, Fairholme Capital Management and Brookfield Asset Management, invested nearly $7 billion to keep the company out of bankruptcy in order to spin-off Howard Hughes. After the deal, Ackman inherited a slew of partially built commercial developments, including several malls and New York City's South Street Seaport, as well as housing developments, all in need of completion. The deal, Ackman said, could create as many as 30,000 jobs in total.


"Had we not stepped into save General Growth, it would likely have liquidated or been sold and thousands of jobs would have been lost," Ackman said. "Howard Hughes is the only company we've ever created. To date it has created 18,000 jobs, [and] will create at least an additional 12,000 more over the next several years."




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